Options Bears Bombard CREE Stock Ahead of Earnings

Puts are running at five times the average intraday volume today

Deputy Editor
Jan 29, 2020 at 1:28 PM
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Semiconductor concern Cree, Inc. (NASDAQ:CREE) is part of the sector-wide slide happening today, after several chip stocks posted disappointing quarterly reports. At last check, CREE was down 0.9% to trade at $51.85, after running into a recent ceiling at the 200-day moving average earlier today. This comes just ahead of its own quarterly confession, which is due out after the close tonight.

CREE Jan 29

The options pits are brimming with bearish activity in response. So far, 2,127 puts have crossed the tape, five times what is typically seen at this point. The most popular is the weekly 1/31 47-strike put, where it appears positions are being bought to open at the volume weighted average price (VWAP) of 69 cents. If this is the case, these traders will profit if CREE slides below $46.31 (price less premium paid) by the time these contracts expire this Friday, Jan 31. 

While bears rule the roost today, options traders typically tend towards bullish bets, per the equity's 50-day call/ put volume ratio of 5.63 on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits higher than 93% of all other readings from the past year, suggesting a much healthier-than-usual appetite for calls in recent weeks. 

Given CREE's strong start for the year, some of this recent call buying could be a result of shorts hedging against any additional upside risk. In the last reporting period, short interest has inched higher and now the 8.64 million shares sold short represent a solid 8.2% of the stock's available float, or 6.60 days worth of trading at its average pace. 

Looking at Cree's earnings history, the returns on the past eight post-earnings sessions have been split evenly. But there's been some notable next-day dips, including a 15.8% slide this past August, and a 7.8% drop the year prior. This time around, the options pits are pricing in a 13.1% next-day move, much bigger than the 4.6% swing the stock have averaged during the last two years, regardless of direction. 


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